Brave Nuclear World? – First of Two Parts

by Karen Charman ~ World Watch Magazine, May/June 2006

A few miles down an idyllic New England country road dotted with handsome homesteads and gentleman farms in central Connecticut sits the Connecticut Yankee nuclear power plant-or what's left of it. After shutting down in 1996, the 590-megawatt reactor is nearing the end of its decommissioning, a process spokesperson Kelley Smith describes as "construction in reverse."

Most of the buildings, the reactor
itself, and its components have been removed. Adjacent to the Connecticut
River, the discharge pond, which received the reactor's second-stage cooling
water from the internal heat exchanger, is being dredged. The soil, including
hot spots near the reactor that were contaminated with strontium-90 from
leaking tanks, has been replaced. Forty concrete casks of highly radioactive
spent fuel now sit on a fenced and guarded concrete pad surrounded by woods on
the company's property about three-quarters of a mile from the reactor site.
Soon the spent fuel pool that housed the irradiated fuel assemblies will be
drained and dismantled. A twisted spaghetti-like tangle of metal protruding from
a partially demolished building will be carted off to a dump site. Stories-high
stacks of steel containers packed with mildly radioactive rubble are also
waiting to be taken away. One of the final tasks will be to demolish the
containment dome, which consists of 35,000 metric tons of steel-reinforced
concrete. When decommissioning is completed by the end of the year, over
136,000 metric tons of soil, concrete, metal, and other materials will have
been removed from the site at a cost of more than US$400 million to the area's
electricity customers.

But for a fluke in timing,
Connecticut Yankee might well have remained in operation today. Ten years ago,
when the board of directors of the Connecticut Yankee Atomic Power Company
decided to close its reactor at Haddam Neck, nuclear power was widely
considered, if not a dying industry, then one that was seriously and
chronically ill. In the newly deregulated electricity market, the company found
it could buy electricity for less than its nuclear power plant could produce
it. Connecticut's deregulation of the electricity sector required the company
to divest itself of the plant. Company directors didn't think they could sell a
single reactor of relatively low capacity, so they decided to shut it down.

Just a few years later, the
economic landscape for nuclear power began changing with the emergence of
companies like Exelon Corporation (a merger between Chicago-based Commonwealth
Edison and Pennsylvania-based PECO) and the Louisiana-based Entergy
Corporation, which began buying up reactors. Entergy purchased Vermont Yankee,
a 540-megawatt reactor, for US$180 million in 2002. Less than 80 kilometers
south of Connecticut Yankee, Dominion Resources spent US$1.3 billion to acquire
three reactors (two operating and one shut) at Millstone-a plant with the
dubious distinction of landing on the cover of Time in 1996
for longstanding, egregious breaches of safety regulations. By 2002, just 10
corporations owned all or part of 70 of the nation's 103 operating reactors.

Fast forward to today. The world
has begun to wake up to the very real and growing perils of human-induced,
catastrophic climate change. The war in Iraq, increasing tension in the
oil-rich Middle East, and memories of both the (market-manipulated) energy
fiasco in California in 2001 and the blackout that affected one-third of the
United States and Canada in August 2003 have raised awareness and anxiety about
unstable, unsustainable energy supplies. These factors, along with a very
skillful, multi-pronged public relations and lobbying campaign, have put
nuclear power, which is touted as carbon-free, back on the table.

According to the International
Atomic Energy Agency (IAEA), nine new nuclear plants-three in Japan, two in
Ukraine, and one each in South Korea, India, China, and Russia-have gone online
since 2004. In that time, two plants in Canada were restarted after years of
not operating, and there is talk of building a new reactor there. Currently 23
nuclear power plants are under construction around the world, including one in
Finland, the first in western Europe since the 1986 explosion at Chornobyl in
northern Ukraine. France, whose 58 reactors provide approximately 80 percent of
that country's electricity, is also considering building another reactor, and
British Prime Minister Tony Blair is calling for new reactors to replace
Britain's aging fleet of 31 reactors, most of which are due to retire by 2020.
In August 2005, U.S. President George W. Bush signed into law an energy bill
that contained US$13 billion in public subsidies to help jumpstart a new
generation of nuclear reactors.

Nuclear
Power vs. Global Warming

A growing chorus of nuclear
advocates, government officials, international bureaucrats, academics,
economists, and journalists is calling for nuclear power to save us from
devastating climate change. Nuclear reactors do not emit carbon dioxide (CO2)
and other greenhouse gases when they split atoms to create electricity. But
it's inaccurate to say that nuclear power is "carbon-free"-on a cradle-to-grave
basis, no currently available energy source is. (Even wind turbines are guilty
by association: the aluminum from which they are built is often smelted using
coal-fired electricity.) In the case of nuclear power, fossil fuel energy is
used in the rest of the nuclear fuel chain-the mining, milling, and enriching
of uranium for use as fuel in reactors, the building of nuclear plants
(especially the cement), the decommissioning of the plants, the construction of
storage facilities, and the transportation and storage of the waste. In fact,
the gaseous diffusion uranium enrichment plant at Paducah, Kentucky, is one of
the single biggest consumers of dirty coal-fired electricity in the country.

Still, it seems impossible to pin
down exactly how carbon-intensive the nuclear fuel chain is, and there is
disagreement within the environmental community about nuclear energy's
potential contribution to global warming. Tom Cochrane, a nuclear physicist
with the Natural Resources Defense Council, says nuclear power is not a large
greenhouse gas emitter compared to other conventional sources of energy. But in
order for nuclear energy to make a significant dent in greenhouse gas
emissions, we would need a huge increase in the number of nuclear power plants
now operating worldwide, which he does not support.

Just how huge? A widely quoted 2003
report by Massachusetts Institute of Technology researchers, "The Future of
Nuclear Power," calls for the construction worldwide of 1,000-1,500 new
1,000-megawatt reactors by 2050, an expansion that would potentially displace
15-25 percent of the anticipated growth in carbon emissions from electricity
generation projected over that time. A 2004 analysis in Science by Stephen Pacala and Robert Socolow, co-directors of
Princeton University's Carbon Mitigation Initiative, says 700 gigawatts of new
nuclear generation-roughly double the number and output of the world's 443
operating reactors-would be needed to achieve just one-seventh of the
greenhouse gas emission reductions (at current emission rates) required to
stabilize atmospheric carbon concentrations at 500 parts per million (ppm).

The MIT report acknowledges such an
expansion would create an enormous nuclear waste challenge requiring a
permanent disposal site with the capacity of the proposed repository at Yucca
Mountain in Nevada "to be created somewhere in the world every three to four
years." If the spent fuel were reprocessed instead, as many nuclear proponents
advocate, it would dramatically increase opportunities to spread nuclear material
that could be used in making atomic bombs. The MIT report rejects reprocessing
as uneconomic and, because of the weapons proliferation dangers, unnecessarily
risky. To deal with the waste, it calls for the U.S. Department of Energy to
develop "a balanced long-term waste management R&D program" and investigate
the possibility of placing the waste in deep geologic boreholes. It also
recommends the establishment of a network of centralized facilities in the
United States and internationally that can store spent fuel for several decades
until better solutions are worked out. Of course, the policy landscape is
strewn with technically plausible recommendations that were dead on arrival
because they glibly ignored the difficult politics of nuclear energy.

Pacala and Socolow maintain that a
range of options is needed to address climate change. They identify 15
technologies or practices now in commercial operation somewhere in the world
and say that scaling up any seven of them could stabilize carbon emissions over
the next 50 years. These alternatives will be more fully explored in Part II of
this series.

Nukonomics

"Nuclear Follies," a
February 11, 1985 cover story in Forbes, declared
the United States' experience with nuclear power "the largest managerial disaster
in business history." With US$125 billion invested, the magazine wrote, "only
the blind, or the biased, can now think that most of that money has been well
spent. It is a defeat for the U.S. consumer and for the competitiveness of U.S.
industry, for the utilities that undertook the program and for the private
enterprise system that made it possible."

Yet nuclear power is now widely
promoted as one of the most economical sources of electricity, with a
production cost of 1.68 cents per kilowatthour (kWh), compared to 1.9 cents/kWh
for coal, 5.87 cents/kWh for natural gas, 2.48 cents/kWh for solar, 0.2
cents/kWh for wind, and 0.5 cents/kWh for hydroelectric, according to the
Electric Utility Cost Group, a data group within the nuclear industry that draws
its information from plant surveys, and Global Energy Decisions, a private
energy data consulting firm. Those figures measure the operating cost of fuel,
labor, materials, and services to produce one kWh of electricity. But like most
sources of energy, nuclear power benefits from substantial government
subsidies. Including nuclear's subsidies, collateral costs, and externalities
leads to a different economic assessment.*

Although a full nuclear revival
with a new generation of reactors to replace the existing fleet could not take
place-at least in the United States-without the participation of the private
sector, commercial nuclear power has never had to compete in a true free
market. From the beginning, nuclear power worldwide has always required government
patronage. In the United States, the industry was launched in 1946 with the
passage of legislation creating the Atomic Energy Commission (the predecessor
to the Nuclear Regulatory Commission, or the NRC), which was charged with
developing both civilian nuclear power and nuclear weapons. In 1954 the
government brought the private sector in, and under President Dwight D.
Eisenhower's "Atoms for Peace" initiative continued to encourage the
development and commercialization of nuclear power.

Although nuclear power currently
provides about 20 percent of U.S. electricity (and about 16 percent of the
world's), between 1950 and 1993 the U.S. nuclear power industry received nearly
50 percent of the total federal spending on energy research and
development-some US$51 billion-according to energy economist Doug Koplow.
Substantial government assistance appears to be the status quo for the nuclear
industry around the world, he adds, though specific data from many countries is
unavailable. Nuclear power continues to get favored treatment, with government
assistance covering virtually all segments of the nuclear fuel chain to one
degree or another.

Uranium mining companies operating
in the United States, for example, get a "percentage depletion allowance" of 22
percent (the highest rate of all depletion allowances for minerals), which
gives them a tax write-off for the market value of what they have extracted-a
significant subsidy since the write-off is typically much greater than their
actual investment. The manufacture of the reactor fuel has also been heavily
subsidized. Until 1998, the government owned the country's two uranium
enrichment plants. When they were privatized into the U.S. Enrichment
Corporation, the government retained liability for the waste clean-up associated
with the operation of the facilities, an ongoing endeavor with a price tag in
the billions.

During construction of the
reactors, utilities were able to pass on the interest costs of the loans to
their electricity customers, utilizing the "Allowance for Funds Used During
Construction." While this was available to all types of power plants, Koplow
says it mainly benefited owners of nuclear plants, because costs on the already
expensive plants ran out of control with construction delays. Nuclear plant
owners also took advantage of highly accelerated depreciation and investment
tax credits in the early 1980s. Koplow says these three accounting mechanisms
significantly reduced the capital costs of the reactors. Even so, after states
began deregulating electricity markets in the 1990s, utilities with nuclear
plants found they needed to charge much more than the going rate for
electricity to pay off their remaining debt, or "stranded costs," and stay
competitive with other electricity sources. State after state changed the rules
to allow utilities to pass on these stranded costs to ratepayers as a surcharge
on their electric bills, a gift to the nuclear industry that by 1997 was worth
some US$98 billion.

The ratepaying public also bears
the cost of dealing with the spent fuel-estimated at US$60-100 billion for the
existing fleet of reactors-as well as for decommissioning the plants. And if
there is another serious accident, the 1957 Price-Anderson Act shields nuclear
plant owners from the lion's share of the cost by capping their liability.
According to Koplow, the utility responsible for the accident would pay US$300
million in primary liability plus US$95.8 million that it and the nation's
other nuclear utilities would contribute per reactor (paid in US$15-million
annual installments over six years) to an insurance pool. With 103 operating
U.S. reactors, the size of the insurance pool is approximately US$10 billion.
By comparison, some estimates put the cost of the Chornobyl accident at over
US$350 billion, and the Union of Concerned Scientists estimates that a serious
accident at New York's Indian Point plant 56 kilometers north of New York City
would be in the trillions-costs mainly left to individuals because of the
standard nuclear exclusion clause in home insurance policies. Without this
particular liability mitigator in the United States and similar instruments in
other countries, commercial nuclear power probably would not exist.

Moreover, it seems that
Price-Anderson is not the only mechanism available to nuclear utilities to
protect themselves from full liability if something goes wrong. According to a
2002 report by Synapse Energy Economics, Inc., since the restructuring of the
U.S. nuclear industry began as states started deregulating their electric utility
industries in the mid-1990s, a few large corporations such as Exelon Corp.,
Entergy Corp., Duke Energy, and Dominion Resources, Inc. increasingly own and
operate nuclear power plants through multi-tiered holding companies. The
individual plants are often set up as limited liability companies (LLCs), a
legal invention that restricts liability to the assets directly owned by the
LLC. "The limited liability structures being utilized are effective mechanisms
for transferring profits to the parent/owner while avoiding tax payments," the
report notes. "They also provide a financial shield for the parent/owner if an
accident, equipment failure, safety upgrade, or unusual maintenance need at one
particular plant creates a large, unanticipated cost. The parent/owner can walk
away by declaring bankruptcy for that separate entity without jeopardizing its
other nuclear and non-nuclear investments."

This arrangement is especially
valuable under deregulation. Before deregulation, nuclear reactors typically
were built by investor-owned utilities and operated under the shelter of a
"cost-of-service regulation." This enabled the utilities to enjoy stable rates
based on their actual costs rather than on electricity sales at market prices,
which can fluctuate. With those stable rates stripped away, the usual risks of
operating nuclear plants-unexpected shutdowns for nonscheduled maintenance, for
instance, or even accidents-became more severe. The use of LLCs allowed much of
that risk to be avoided. Yet, according to former NRC commissioner Peter
Bradford, the agency failed to develop a comprehensive policy to ensure that
the transfer of reactor ownership into these new corporate structures would not
endanger the public. "In the absence of any such requirement, public protection
has depended on the acumen of a Nuclear Regulatory Commission unversed in
financial matters and of economic regulators unversed in health and safety
issues. As has happened in financial and in utility restructuring circles,
fundamental safeguards have been circumvented," he writes in the forward to the
Synapse report. The consequences, he adds, remain to play out.

The NRC rejects both Synapse's and
Bradford's allegations. In a written statement, the agency said it believes its
regulations "provide reasonable assurance that a licensee will have sufficient
resources to operate, maintain, and decommission nuclear power reactors. The
NRC fully considered the issues raised in the 2002 Synapse report and believed
then-and continues to believe-that our regulations adequately address LLCs or
other corporate arrangements." The agency maintains that regardless of the new
business arrangements, it continues to ensure that reactor owners meet their
obligations, adding that most reactors also operate under regulation by state
public utility commissions, which provide significant financial oversight.

"Their general platitudes don't
convince me that we were wrong on any issue," says David Schlissel, lead author
on the Synapse report. In addition, he says NRC is incorrect that state public
utility commissions continue to oversee reactors in states where electricity
markets have been deregulated. "The 19 plants owned by Exelon, they are all
deregulated," he says, "as are many nuclear plants in the Northeast and Midwest."

Try,
Try Again

On Valentine's Day in 2002,
the U.S. Department of Energy unveiled its Nuclear Power 2010 program for
sharing costs with industry to "identify sites for new nuclear power plants,
develop and bring to market advanced nuclear plant technologies, evaluate the
business case for building new nuclear power plants, and demonstrate untested
regulatory processes leading to an industry decision in the next few years to
seek NRC approval to build and operate at least one new advanced nuclear power
plant in the United States." Currently three consortia, an 11-company group
called NuStart Energy Development and smaller ones led by the Tennessee Valley
Authority and Dominion Resources, have been formed to investigate building new
reactors. Despite consortia members' combined revenues of US$447 billion during
2003-which, Koplow points out, rivals the Russian Federation and exceeds the
combined GDP of 104 countries-the U.S. government is now offering the nuclear
industry additional incentives worth more than US$13 billion as seed money for
new nuclear plant construction. According to an analysis released last year by
the non-profit group Public Citizen, the Energy Policy Act of 2005 includes
US$2.9 billion for R&D, at least US$3.5 billion worth of construction
subsidies, more than US$5.7 billion for operating subsidies, and US$1.3 billion
for shutdown subsidies.

Some of the package's more notable
elements include US$2 billion for risk insurance, which allows builders of the
first six reactors to collect for any delays in construction or licensing,
including challenges by the public on safety grounds (e.g., if a whistleblower
reported faulty construction and a citizen group sued). It includes production
tax credits of 1.8 cents per kilowatthour for eight years, an estimated
US$5.7-7.0 billion that would otherwise go to the U.S. Treasury. There are also
provisions for taxpayer-backed loan guarantees for up to 80 percent of the cost
of a reactor. These loan guarantees are particularly handy, considering that
billions of dollars were lost during the first round of nuclear plant
construction when more reactors were cancelled than were built, many after
hundreds of millions of dollars had already been spent.

That's a big handout, but it
remains to be seen whether it's enough to kick-start a new generation of
reactors in the United States, which industry observers say is necessary for a
viable economic future for nuclear power. Thomas Capps, the recently retired
CEO of Dominion Resources, head of one of the consortia seeking a license for a
new reactor, told the New York Times last April
that if his company announced it was actually going to build a nuclear plant,
debt-rating agencies Standard & Poor's and Moody's "would have a heart
attack, and my chief financial officer would, too." Peter Wells, general
manager of marketing for General Electric's nuclear energy division, is
cautiously optimistic but not yet convinced a new generation of reactors will
be built. He says it will depend on friendly government policy and positive
experience with the first of the new reactors coming in within budget and on
schedule.

Bush Administration policy is
increasingly agreeable to the nuclear industry, but whether reactors can be
built for their advertised costs is another question. At US$1,500 per kilowatt,
the new "advanced" Generation III+ reactors are said to be much cheaper than
those in the existing fleet. According to a 2001 Congressional Research Service
(CRS) report on the prospects for new commercial nuclear reactors, total construction
costs exceeded US$3,000/kw for reactors that were started after 1974, and those
completed since the mid-1980s averaged US$3,600/kw. Anyone familiar with
Pentagon procurement gaffes knows that chronic overruns and miscalculation of
costs has been a longtime problem with large engineering projects, and the
nuclear power industry is no exception. According to an analysis by the Energy
Information Administration, plants that began construction between 1966 and
1977 underestimated their actual costs by roughly 14 percent, even when plants
were 90 percent complete.

So far, only two reactors of new
design, both of them GE Advanced Boiling Water Reactors, have been built (in
Japan, for the Tokyo Electric Power Company). However, despite GE's estimate
that the cost would be US$1,528/kw, CRS reports the first came in at
US$3,236/kw and the second at around US$2,800/kw. Wells says the price of those
plants was inflated because they were "gold-plate plants with marble floors and
the like" that otherwise would have cost much less.

Peter Bradford says that despite
the passage of the Energy Policy Act, nothing has fundamentally changed that
would improve the economics enough to see a new generation of nuclear reactors.
"With US$13 billion in new subsidies, if the government wants to prove that if
it spends enough it can build nuclear plants, it can do that. The Chinese prove
that for us a couple times a year," he said. "But that's not the same as saying
it makes economic sense to do it." Still, Bradford acknowledges, "the stars
have not been so favorably aligned for the industry since Atoms for Peace."

In a dramatic turnaround from
nuclear's dog days in the 1980s and ‘90s, excitement is building on Wall
Street. Steven Taub, director of emerging technologies at Cambridge Energy
Research Associates, is confident new plants will be built, though he says the
exact number will depend on how the various government incentives are
distributed. Unlike the current fleet of nuclear reactors-nearly all of which
were custom built-the next generation will be much more standardized to take
advantage of economies of scale.

The government subsidies for new
reactors are intended to offset the higher "first-of-a-kind" costs for the
first few plants. If all goes without a hitch, the thinking is that lenders and
utility shareholders will regain confidence that new nuclear plants can be
competitive enough to finance without these subsidies. External factors will
also determine the competitiveness and economic viability of nuclear power, Taub
says. These variables include the price of natural gas, whether a carbon tax or
other price-raising measures will be imposed on coal and other fossil fuels,
and whether carbon sequestration technology for coal-fired power plants can be
proven and widely adopted. "These are questions that nobody knows the answer
to," he says.

Part Two of this series looks at the waste problem, at the proliferation and other security risks stemming from nuclear power, and at the strength of arguments
for nuclear power in the context of other options.

Karen Charman is an independent journalist specializing in environmental
issues and the managing editor of the journal Capitalism Nature Socialism.